25 Invoicing Mistakes to Avoid in Your Small Business

As a business owner, invoicing may seem like a tedious, straight forward task that doesn’t require your full attention. But, it’s absolutely crucial if you want your business to maintain a positive cash flow.

Even if you realize this fact, simply sending your clients or customers an invoice informing them that they owe you a specific amount of money is ineffective and unprofessional. But, that, along with the following 25 mistakes, happen frequently.

To ensure that you get compensated for your goods or services on time, you need to prevent these mistakes.

1. Forgetting to invoice.

Obvious? Sure. But invoicing can sometimes slip the minds of business because they’re so busy. There are even some circumstances when a business owner doesn’t send out a bill.

Maybe they have a deal in place with a client or customer so they assume the client will automatically compensate them for their products or services.

Remember, it’s your responsibility to send out an invoice. Make invoicing a priority so that you don’t forget.

2. Procrastinating.

The best time to send out an invoice is immediately following the completion of a project or a sale. Unless you have another financial arrangement with your clients or customers, you can’t afford to wait to send out an invoice.

We’ve actually found that when you invoice the same day that the job is completed (as opposed to waiting two-plus weeks for your billing cycle) you are almost 1.5x more likely to get paid!

3. Not following up on unpaid invoices.

Even if you’ve made invoicing a priority and send them out immediately or frequently, there will be times when the client misses the due date because they misplaced the invoice, simply forgot about it, or are just deadbeats.

Like sending invoices in the first place, this is your responsibility to follow-up on unpaid invoices. Contact the client immediately to find out what’s going on and use invoicing software that send out automated reminders.

If the client is unresponsive, you may have to take steps like taking them to small claims court or having a collection agency chase down the payment for you.

4. Having unclear terms.

Avoid using vague language when writing out an invoice. If you want the client to pay the invoice quickly, make sure that you include clearly stated item descriptions, prices and quantities. Avoid any ambiguous language or descriptions.

If your clients also need to clearly understand when the payment is due by using ‘Days’ instead of ‘Net,’ as well as the consequences if these terms are broken.

5. Not signing a contract.

Here’s some killer words of wisdom from Sir Richard Branson, “In an ideal world, a handshake would be all that an entrepreneur or executive needs to seal a deal with a business partner.” However, since it’s not uncommon for business conditions to change, because of the economy or consumer tastes, it’s in your best interest to have a signed contract to protect you from getting played instead of getting paid.

Having your clients sign a simple contract ensures that both parties are protected and are on the same page when it comes to payments. As Branson notes, “By all means, shake hands on a deal, but then make sure to ask your lawyers to record the details. It could be the best bill you ever pay!”

6. Sending invoices to the wrong person or department.

Just because you agreed on a project, sale, and payment terms with an individual doesn’t mean that they’re going to be the ones responsible for paying the invoice.

After all, they could have an entirely different department or have hired an outside party to handle billing. Even worse? Billing the wrong client altogether. It’s embarrassing, unprofessional, and could sever the relationship with that client.

Prior to sending out an invoice always make sure that you’re sending it to the right person or individual so that you can bill them directly.

7. Incorrect or missing details.

In order to prevent any misunderstandings, your invoice should always include the following information:

Always make sure to include the following details on any invoice you send out:

Legal company name and number

Office address

The client’s name and address

Invoice number

Invoice date

Due date

Any tax numbers that may be required by local law

Payment terms

Itemized list of products or services that you provided

8. Failing to itemize.

Speaking of itemization, every one of your invoices should include an explanation of each charge, such as hourly rate, expenses, or the flat fee for a project.

How you itemize your invoices will vary depending on your business, but it’s an essential component of invoicing if you want to get paid on time since it will let your clients know exactly what they’re paying for.

9. Not using a numbering system.

A numbering system makes it easier to track and manage your invoices bills, like which invoices have paid and which ones are still pending, and prevents you from sending duplicates.

Additionally, a numbering system, makes it easier to locate a bill if you ever have the unfortunate event of getting audited.

10. Not backing up your invoice on the cloud.

What happens if your computer crashes or is damaged and you haven’t backed up all of its data? You’re in a pickle, to say the least.

Like all of your other vital documents, make sure that your invoices are backed-up and stored on the cloud so that they can be easily retrieved. Thankfully, most invoicing software systems do this automatically for you.

11. Unexplained fees.

Not all all surprises are pleasant. In fact, one of the worst invoicing mistakes that you could make is sending a client an invoice that contains undiscussed or additional fees. This could lead to confusion or even distrust.

Explain each and every charge to your clients prior to starting a project so that they aren’t surprised when they review the invoice.

12. No late fees.

Late interest fees can create a sense of urgency among your clients since it notifies them that if the invoice isn’t paid by the due date there will be consequences.

Make sure that this is discussed upfront and is included in your payment terms.

13. Not offering incentives.

At the same time you should encourage your customers to pay the invoice on time or, even better, ahead of schedule.

This can can be done by offering them a discount if they pay the bill before it’s due. Other incentives could be gift cards or credits or if they pay early.

14. Poor formatting or editing.

Spelling errors, incorrect dollar amounts, and generic formatting can make your business look sloppy and unprofessional. As if that wasn’t enough, this can also prevent you from receiving the correct payment on time.

Always double check your invoices so that you can catch mistakes before the invoice is sent out.

15. Not offering multiple payment options.

If you want to get paid on time, then you need to make is as easy as possible for your clients and customers to pay you. Consider using a variety of payment options from credit card processing, to direct bank deposits and checks.

Thankfully even more options are opening up, such as cryptocurrencies like bitcoin -- so that payments are safe, fast, and efficient for both you and your customers.

16. Not branding your invoices.

Did you know that you’re 3x more likely to get paid if you add a company logo to your invoice? That’s because a logo establishes your company as a professional and established brand and differentiates you from the other invoices that your client’s are receiving. It also serves as a good branding opportunity.

Besides your logo, make sure that you use colors, fonts, and templates that mirror your brand.

17. Failing to use your invoice as a marketing tool.

While the main goal of your invoices is to get paid, invoices can also be used as a marketing tool that can can increase your revenue.

When you send out an invoice don’t be afraid to include marketing materials, such as flyers or email newsletters. Discounts for future work or products and referral incentives work well.

Asking for testimonials or recommendations or showing a short testimonial on the invoice is good advertising.

18. Poor manners.

Being polite, like adding phrases like “please pay your invoice within 21 days” or “thank you for your business,” can increase the percentage of your invoices getting paid by more than 5 percent!

That may not sound like that big of a deal, but that could potentially equal thousands of dollars per year into your bank account.

As an additional perk, being polite can also improve your brand’s image.

19. Having lengthy payment terms.

If you give customers too much time to make a payment, then it’s obviously going to take longer for you to get compensated.

For example, if you give a customer 45 days to pay an invoice, and that customer pays you two weeks after the due, then that means you’ve waited two months to receive that payment.

It’s the norm to have a payment term of 30 days or less, however, make sure that you review your industry’s invoice standards, along with asking the client when their pay cycle runs, in order to establish your payment terms.

20. Not knowing your client’s pay cycle.

Speaking of your client’s pay cycle, your clients have set their own payment procedures. For example, they may pay their bills only on the first of every month, which means that even if you send them weekly invoices they won’t be paying those invoices until the first.

Ask your customers when their pay cycle so that you can sync their cycle with your own so that you know when to bill them.

21. Not being flexible.

Although you’ve established payment terms, and you need to stick to them. Then if needed, you can offer a little wiggle room.

For instance, you may want to set-up a monthly payment plan instead of asking for the payment in full if the client doesn’t have the money to pay the full amount of the bill by the due date.

22. Failing to highlight warranties or guarantees.

Providing warranties and guarantees helps make your business appear more legit and credible. It also gives the customer peace of mind.

If you do offer a guarantee or warranty, make sure that is clearly mentioned in your terms and conditions.

You should also discuss any possible situations where the client/customer loses this warranty or guarantee.

23. Storing credit card numbers.

This is a big no-no. In fact, storing your customer’s credit card numbers violates PCI-DSS regulations. Working with a trusted and reputable payment processing vendor eliminates this temptation.

24. Not understanding invoice factoring.

Are you in need of cash fast? Then invoice factoring is a popular option where you sell unpaid invoices to an invoice factoring company in exchange for cash.

In most cases, you’ll receive 80 percent of the invoice amount immediately and 20 percent (minus fees) when the invoice is paid-in-full.

While this can be a life-saving option when you’re cash strapped, many businesses fail to fully understand invoice factoring.

Before going this route, make sure that you’re aware of the fees that you’ll have to pay, not meeting the minimum requirements, submitting a bad application, and trying to submit invoices from habitually late paying clients.

25. Using a paper-based system.

Finally, there’s no longer an excuse to use a paper-based invoicing system. Switching to a cloud-based system will save you money on postage, paper, and ink -- it's faster and will save a tree or two.

Additionally, it will speed up the payment process since invoices are sent and received electronically and it’s easier to track and manage your invoices.

Still not convinced? Cloud-based invoicing systems will automate the invoicing process by allowing you to set-up recurring payments, sending out payment reminders, and backing-up your invoices on the cloud.